PT157.S4.P2.Q8 > Analytics

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Passage A.

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Intro to Topic · Markets Good

Markets efficiently distill the collective wisdom; they require buy in; they reward being right.

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Markets for Forecasting · Performs better than 75% of polls

The Iowa Electronic Markets can forecast election results. Buyers and sellers can trade on their bets of which candidate is more likely to win.

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Markets are Efficient · Information spreads very quickly

Experiment that demonstrated how quickly "inside knowledge" can spread in the market via price as a signaling mechanism.

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Intro to Topic · Markets are not perfect

Sounds like a disagreement with Passage A's position...

Example · Iowa Electronic Markets

The Iowa Electronic Markets didn't get a recent election result right until a few days before the election.

Analogy · Markets are like racetracks

You make bets based on what you expect the payoff to be

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What do "prediction markets" actually do? · Reflect majority opinion

They are not omniscient. They are a better version of polls that generates more serious responses.

Passage Style

Both passages are primarily concerned ████ █████████ █████ ███ ██ ███ █████████ ██████████

Question Type

Implied

We’re looking for a question that the main point of each passage would answer.

Split Approach: After passage A, eliminate any answer choice that can’t be answered by the main point of that passage. (The main point of passage A is that markets are efficient and effective at revealing true information.) Then, after passage B, choose the remaining answer choice that can be answered by the main point of that passage. (The main point of passage B is that prediction markets don’t actually predict anything; they just reflect popular opinion.)

Sequential Approach: The main point of passage A is that markets are efficient and effective at revealing true information. The main point of passage B is that prediction markets don’t actually predict anything; they just reflect popular opinion, which is sometimes right and sometimes wrong. So both passages at least seek to answer whether markets are useful for revealing true or right information.

Is collective wisdom ████ ████████ ████ ██████████ █████████

Passage A isn’t primarily concerned with answering this. Author A does suggest that collective wisdom is more reliable individual judgment, but his goal isn’t to convince us that is true. Rather, he uses the fact that collective wisdom is so reliable as support for primary point of the passage: markets are efficient and effective at revealing true information.

Passage B doesn’t answer this at all. Author B only looks at how effective the collective wisdom of markets really is. She doesn’t make any comparisons to individual judgment.

What can be ███████ ████ ████████ ███ ████████ ██ █████ ████████

Passage A is primarily concerned with answering this; its main point is that the movement of stock markets can reveal true information about the likelihood or value of something.

But passage B doesn’t answer this. Author B only tells us that markets don’t produce reliable predictions. She doesn’t suggest what can be learned from them.

12%

Can markets be ████ ██ ██████ ████████ ████████████

Passage A is primarily concerned with answering this. The main point of passage A is that markets are efficient and effective at revealing true information.

Passage B is also primarily concerned with answering this. The main point of passage B is that prediction markets aren’t reliable at making predictions. (They just reflect popular opinion, which can be erroneous).

77%

Are opinions more ██████ ██ ██ ████ ████ ██████ ████ █████ █████ ██ █████

It’s unclear whether passage A answers this. Author A does note that in the Iowa Electronic Markets, people stake money on their opinions. And he believes the Iowa Electronic Markets are effective at making good predictions. So he might believe the answer to (D) is “yes.” But he doesn’t actually consider how likely opinions are to be true when people don’t stake money on them. So it’s difficult to say for sure what his answer to (D) is. And even if we think he suggests that the answer to (D) is “yes,” that only serves as support for his main point: that markets are efficient and effective at revealing true information. So even if (D) is answered in passage A, it’s not what the passage is primarily concerned with answering.

Are markets that ███ ██████████ ██ ███████ ████████ ███████ ██ █████████ ██ ██████ █████ ████████

Passage A isn’t concerned with this comparison. Author A says that prediction markets are effective, and price markets are both effective and efficient. He doesn’t compare the efficiency of each kind of market.

Passage B also isn’t concerned with this comparison. Author B only examines prediction markets.

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PrepTest 157 - Section 4 - Passage 2 - Question 8

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PrepTest 157 - Section 4 - Passage 2 - Question 8

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